The stock market hasn't made sense in 14 of the last 20 quarters

Earnings are what investors ultimately want out of the companies
they invest in. Earnings, and the expectations for earnings
growth, are therefore what give stock prices their value.

However, stock prices and any revisions to earnings
expectations rarely move in the same direction in the short
run. While that's a principle that
plays out in the market in the long run, it's actually not
unusually to see the exact opposite moves happens.

In other words, you may know that earnings expectations will
sour. But you may actually lose money trading on what may be
correct information. This is why investing in stocks can be an
incredibly frustrating exercise for even the most patient people.

Take this chart that FactSet's John Butters
updates regularly. It shows the trajectory of the S&P 500
with the trajectory of analysts' forecast for current-quarter
earnings. Prices have been going up even as analysts' forecasts
have been coming down.

"During the fourth quarter, analysts lowered earnings
estimates for companies in the S&P 500 for the quarter,"
Butters said. "The Q4 bottom-up EPS estimate (which is an
aggregation of the estimates for all the companies in the index)
dropped by 4.2% (to $29.36 from $30.65) during this
period."

"While the bottom-up EPS estimate declined during the
fourth quarter, the value of the S&P 500 increased during
this same time frame," he continued. "From September 30 through
December 31, the value of the index increased by 6.5% (to 2043.94
from 1920.03). This marked the 14th time out of the past
20 quarters in which the bottom-up EPS estimate decreased while
the value of the index increased during a
quarter."

First it's important to note that these are expectations that are
getting revised down, which suggests analysts just have a
tendency to be a little too optimistic.

Also, it's a reminder that the direction of earnings and
expectations for earnings alone reveal very little about where
stock prices are headed in the near term. (Read more about this
here and
here.) Earnings and price often separate, and it manifests in
expanding and contracting valuations.

Another way of saying this is that it's nearly impossible to
predict the near-term direction of market multiples like the
forward price-to-earnings ratio.

"We don't think anyone can forecast the price-to-forward earnings
ratio for the S&P 500 in time frames less than a few years,"
Parker said recently. "We assign little value to this attempt
other than just framing and dimensioning some of the key
variables, and we are constantly amazed when people ask about the
market multiple, given that all of our prior work has shown
basically no empirical evidence to support forecasting claims.
Why more people don't understand this is unclear to us. Many
times those making the forecasts are simply unaware that they
can't actually do it accurately, rely on spurious correlations,
or don't bother to back-test their own theories."

Yes, even seasoned pros like Parker are willing to acknowledge
that charts like these are basically unpredictable and
unexplainable.

Keep all this in mind the next time someone says stock prices
will go down because they're too expensive.